Company reports better than expected profits with improved sugar performance

With oil holding steady despite the weekend’s failure by oil producers to agree an output freeze, leading shares are moving higher again, with Primark owner Associated British Foods one of the big gainers following its latest figures.

The company reported a 3% rise in half year profits to a better than expected £486m, but the figures were sweetened by a revival in the sugar business, which recorded a small improvement after several years of decline. The business benefited from cost cutting which the company said was necessary with sugar prices low and the withdrawal of EU quotas expected next year.

ABF offers investors compelling exposure to secular growth trends in retail. Primark’s brand of fast fashion at affordable prices coupled with a buzzy and trendy shopping experience resonates with a wide spread of consumers. ABF’s deliberate and considered expansion into Continental Europe demonstrates that the concept is portable. We expect similar results in the US as the group dips its toe into the market with 8 stores in the Northeast. We estimate that Primark can double sales and profits over the next 5 years boosted by the occasional store parcel. The shakeout in EU sugar should lead to industry consolidation, lower beet prices and cost savings boosting Sugar profits mid-term.

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